ETF, better known as exchange traded funds, were introduced back in the 1990’s, and since then, they are a massive hit. They are a wonderful alternative for mutual funds, for investors. This tool came along with a handful of benefits, offering high intraday cost visibility with cost-effective management fees.
But we all know and understand that all investments vary and none of them are perfect. Likewise, ETFs aren’t all wonders. They come with some downsides as well. However, its advantages are way more helpful than the cons and thus, ETF service providers have gained a lot of attention and praise in the past few years.
Benefits of Investing in ETFs
There are innumerable perks that come along with investment in ETFs. When you compare them with mutual funds, you come to realize the advantages that it has to offer. Let’s have a deeper look.
1. Incredible Variation:
One ETF has a lot of variation in its capabilities. It can bring exposure to styles, market segments and a group of equities too. It also helps in tracking a bigger number of stocks. As an investor, the variation is a huge benefit that cannot be subsided.
2. Cost effective:
The expense ratio of ETFs is much lower than mutual funds as they are managed passively. The expense ratio includes the management fee, services fee for marketing, shareholder expenses and much more. Mutual funds have a larger fee range which makes it tougher for investors to keep up with.
3. Flexibility for Trading:
ETFs are more flexible when it comes to trading. They are bought and sold throughout the day which results in constant prices during the exchange hours. Within a few minutes, the ETF investors know how much they have paid and how much they have received after selling. The management portfolio with ETF investment is wonderful. It makes it super easy and flexible to move money between assets like stocks, commodities and bonds.
The flexibility gives power to the investors to make investments at the right time and place orders in different ways.
4. Low Premium in Price:
ETFs come with a lower chance of being lower or higher, than their real value. As these funds are traded throughout the day, the arbitrage brings the prices back in line, if they do go higher or lower than the actual value. As it runs on the rules of supply and demand, the market makers capture any type of price discrepancy and fix it.
THE BOTTOM LINE
ETFs are preferred more over mutual funds. It helps investors in building a strong portfolio and gain the required exposure, in various sectors of the trading and investment market. They can be utilized for broader investments due to their flexible price movements. However, before you make a choice, it is best to gain an insight to mutual funds too (if you are a beginner) and then make a choice, according to your preferences.